honor not having awarded costs, on the same grounds mainly which the Vice-Chancellor had assumed that as no specific representations had been made by the company, and no specific inquiry by the plaintiff, his case failed on that point; and inasmuch as he completed the purchase after being informed of the facts as to defect of title, he could not complain of any previous misrepresentation.16

11. But it was declared in the House of Lords,16 that if reports are made to the stockholders of a company by their directors, and adopted by them at one of their appointed meetings, and afterwards circulated in their published reports, they are binding upon the company. And if erroneous statements in such reports can be clearly shown to have been the proximate and immediate cause of shares having been bought from the company by any individuals, a court of equity will not permit the company to retain the benefit of the contract.

12. But when a company issues a prospectus, a person contracting to take shares on the faith of it, has the right to claim, not only that he shall not be misled by any statements actually false, but that he shall be correctly informed by it of all the facts, the knowledge of which might reasonably have deterred him from entering into the contract.17 But the false representation of an officer is not that of the company, even if made at the office. But to become the act of the company it must be contained in a report of the company adopted at a regular meeting.1

18

18

13. The directors of a railway company are not justified in acting on an old resolution authorizing the issue of shares, after the purpose for which the issue was authorized has ceased to be available; 19 nor in issuing shares, supposing them to possess the power, for the express purpose of procuring votes to influence a

16 8 Jur. N. S. 575. See here Lord Chelmsford's strictures upon the loose mode of stating fraud. See Royal British Bank in re Mixer's case, 4 De G. & J. 575. See, also, Cullen v. Thompson, in the House of Lords, where all the officers of a company participating in a fraudulent representation are held liable, although but part signed the report. 9 Jur. N. S. 85.

17 N. B. & C. Railw. & Land Co. v. Muggeridge, 1 Drew. & Sm. 363; s. c. 7 Jur. N. S. 132.

18 Royal British Bank in re, 3 L. T. N. S. 843.

19 Fraser v. Whalley, 2 H. & M. 10.

coming general meeting.19 An injunction will be issued to restrain such action of the directors, it not being a question of the internal management of the company, but an attempt to prevent such management being legitimately carried on.

14. In a trial 20 before Martin, B., where it appeared that the profits of the company had been studiously misrepresented by the manner of keeping the books, and a large apparent profit on the year preceding the report presented, by not bringing all the cost of material forward into the account of the year in which it was consumed, it was held that any error in the mere mode of keeping the accounts would not be evidence of fraudulent representation, but the falsification of facts and figures was so, as against any of the officers of the company who were aware of the issue of the prospectus, and had aided or connived at the mode in which it was made up.

15. It was also held in the last case, that as the statute required the dividend to be declared by the directors, though with the sanction of the shareholders, if to the knowledge of the directors and officers of the company such dividend so declared by the directors was paid otherwise than out of profits, they are responsible for it, and for the circulation of any declaration of it, acted upon by innocent shareholders.

16. Directors may ratify any contract made on their behalf which they have power to make themselves.21 And where the constitution of the corporation gives to the directors, with the sanction of an extraordinary meeting of the shareholders, by a majority of two thirds, power to do any act which might be done with the consent of all the shareholders, the directors may lease the entire business of the company in that mode.22

20 Bale v. Clelland, 4 F. & F. 117; Kisch v. Venezuela Railw. Co.,, 11 Jur. N. S. 646. The question of fraud by means of inducing a shareholder to buy his shares upon a misapprehension of the true condition of the company, is one of fact, to be judged of by the jury upon a consideration of all the facts, and is mainly one of intent. Cleveland Iron Co. v. Stephenson, 2 F. & F. 428.

21 Wilson v. West Hartlepool Harbor & Railway Co., 11 Jur. N. S. 124. 23 Featherstonhaugh v. Porcelain Co., 11 Jur. N. S. 994.

*SECTION II.

When Directors become Personally Liable.

1. Not liable personally, for any lawful act | 4. Extent of powers affected often by usage

done as directors.

and course of business.

2. But are liable upon express undertaking 5. But if contract is beyond the power of to be personally holden. company, or not in usual form, directors. personally liable.

3. Are liable personally, if they assume to go beyond their powers.

*

6. Statement of case illustrating last point.

1

§ 136. 1. The English statute enacts, what was the common law indeed, that no director should become personally liable by reason of any contract made, or any act done, on behalf of the company, within the scope of the authority conferred by the statutes of the legislature and the company, or, as it is expressed, "by reason of any lawful act done by them." Corporations are not, in general, responsible for the unlawful or unauthorized acts of their officers. But the corporation may be held responsible for the publication of a libel, by its agents and servants in the due course of the business of the company, as where the company were the owners, and by their agents managed the electric telegraph along their line, and sent a despatch to the effect that the plaintiff's bank "had stopped payment," which proved not to be the fact. This despatch was sent for their own protection, in order to insure their agents against taking bills on such bank. But the message went beyond what was necessary for that purpose, and thus made the company responsible as for a voluntary publication. It would have answered all purposes to have directed their agents not to take the bills without assigning any reason. So, too, in Philadelphia, Wilmington and Baltimore Railway v. Quigley, it was decided,

3

1 Mitchell v. Rockland, 41 Me. R. 363. Commissioners to accept subscriptions for a corporation, who are by the charter required to give notice of the time and place of opening the books, may, give such notice by a majority of their number. Penobscot Railw. v. White, 41 Me. R. 512.

2 Whitfield v. South Eastern Railw., 1 Ellis, B. & Ellis, 115; s. c. 4 Jur. N. S. 688.

3

3 21 How. (U. S.) 202.

*402-404

that a railway may become liable for publishing and circulating among its members a statement of the report of the directors, and the evidence on which it is based, although the report itself, when made to the stockholders in good faith, and for their information upon matters affecting their interest, would be regarded as a privileged communication.

2. But directors have been held liable, in many cases, personally, where the debt was that of the company, and where it so appeared upon the face of the contract. As upon a promissory note, which was expressed, "jointly and severally we promise to pay," "value received for and on behalf of the Wesleyan Newspaper Association. S. & W., Directors." But it is ordinarily a question of *intention, whether the directors are personally liable if they act within the powers conferred by the company.5

4

3. But where the directors of a railway assume to do an act exceeding their power, as accepting bills of exchange, which

Healey v. Story, 3 Exch. 3. Alderson, B., said the terms, jointly and severally, imported a personal undertaking, inasmuch as they could properly have no application to the company. But see Roberts v. Button, 14 Vt. R. 195, and the cases cited, where the subject is examined more at length than space will here allow. Dewers v. Pike, Murphy & Hurl. 131. But in the case of Lindus v. Melrose, 31 Law Times, 36, before the Court of Exchequer Chamber (February, 1858), it was held that a promissory note expressed," For value received we jointly promise to pay," and signed by three of the directors of a jointstock company, and countersigned by the secretary, and expressed to have been on account of stock of the company, did not bind the signers personally, but imported, on its face, a contract on behalf of the company.

5

Tyrrell v. Woolley, 1 Man. & Gr. 809; Burrell v. Jones, 3 B. & Ald. 47. In a somewhat recent case, Davidson v. Tulloch, 6 Jur. N. S. 543, before the House of Lords, it was determined, that an action may be maintained against the directors of a company in respect of any transactions which the body of the shareholders could not sanction, but in respect of any transaction which they might sanction, although the directors might not have been justified in what they were doing there can be no right of action. And directors are not liable for defect of authority to make a conveyance of property, the sale of which they had negotiated, but the actual sale being broken off by an objection of the vendee's solicitor, that the directors had not the requisite authority. Wilson v. Miers, 10 C. B. N. S. 348. See also Nowell v. Andover & R. Railw. Co., 3 Gif. 112; s. c. 7 Jur. N. S. 839. The company are not liable to make good any loss sustained through the false representations of their officers, although incidently benefited thereby, unless they entered into the scheme for the purpose of such gain. Barry v. Croskey, 2 Johns. & H. 1.

V

does not come within the ordinary business of railways, they will be personally liable."

4. But the business of railways is so much extended in this country, as borrowers of money, carriers, and contractors, in various ways, that it is not easy to determine, except from each particular case, how far the directors may draw or indorse bills, or, indeed, what particular acts they may or may not do.

7

In a recent case the question of the extent of corporate powers is considerably discussed, and it was held that the exercise of such powers must be conferred by their charters, but that it is the duty of courts to give the charters such a construction as to effect the leading purposes of the grant where that can be done consistently with the grant; and that business corporations have the power to make such contracts and in such forms as are requisite to accomplish the purposes of the grant, having regard to any special limitations contained in such grants, and that promissory notes or bills made or received by such corporations. are prima facie valid, but that it is competent to show that the transactions out of which they arise are not within the powers of the corporation and thus defeat their operation. In another case it was held, that prima facie a railway company had power to execute promissory notes for its legal indebtedness, and that it could do this only by its agents; that no written or sealed authority to the agent was requisite; nor that the contract should be under seal unless specially so required by the charter; that it was not important to prove the consideration, as the law will make the same implications in favor of the note of a corporation as in other cases.

8

5. By the construction of the English statutes, if a trustee or director of any public work made a contract for any matter not provided for in the special acts of the company or by the general statutes, applicable to the subject, or in a different form from

• Owen & Van Uster, 10 C. B. 318; Roberts v. Button, 14 Vt. R. 195.

7 Straus v. Eagle Insurance Co., 5 Ohio St. 59.

8 Hamilton v. Newcastle & Danville Railw., 9 Ind. R. 359; M. &. M. Railw. v. Hodge, Id. 163. In Massachusetts it was held that the only remedy under the late statute for a corporate debt, against an officer of the corporation, was in equity. Bond v. Morse, 9 Allen, 471.